Drugstore chain operator,
Rite Aid Corp.
), posted third-quarter 2013 earnings per share of 7 cents that
fared better than both the prior-year quarter loss of 6 cents as
well as the Zacks Consensus Estimate of a loss of 4 cents a
share. The positive earnings in the quarter are mainly attributed
to the rise in adjusted EBITDA and lower LIFO charge. The company
continues to benefit from eight straight quarters of improved
adjusted EBITDA and same store prescription count.
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Rite Aid's revenue of $6,237.8 million declined 1.2% compared
with $6,312.6 million in the prior-year period. The decline in
the top-line was attributable to the effect of introduction of
low cost generics on pharmacy same store sales and shuttering of
outlets. However, total revenue swept past the Zacks Consensus
Estimate of $6,209 million. Same-store sales were down 1.5%
compared to the year-ago period, driven by lower pharmacy sales,
offset slightly by a rise in front-end sales.
During the quarter, front-end sales improved 1.1%, while pharmacy
sales decreased 2.7% due to the introduction of new generic drugs
that adversely impacted the sales by 924 basis points. Besides,
prescriptions filled at comparable stores augmented 3.6% from the
year-ago quarter, including gains from the incremental
prescriptions filled due to the Walgreens/Express Scripts
dispute. Prescription sales made for about 67.8% of total
drugstore sales, while third party prescription revenue
represented was 96.5% of pharmacy sales.
Rite Aid's gross profit elevated 8.4% year over year to $1,811.3
million, with gross margin expanding 250 basis points to 29.0%.
SG&A expenses as a percentage of sales expanded 70 bps to
Rite Aid reported adjusted EBITDA of $295.3 million, up 33.3%
from $221.5 million in the prior-year quarter, gaining from
higher front-end sales, favorable script trends that strengthened
prescription count growth and increased Pharmacy gross margin
driven by new generic introductions.
Balance Sheet and Cash Flow
At quarter-end, Rite Aid had cash and cash equivalents of $263.4
million and long-term debt of $5,827.9 million. The company ended
the third quarter with $1.2 billion of liquidity, consisting of
$1.075 billion in credit facility and $167 million of invested
cash. There was no borrowing outstanding under its $1.175 billion
revolver credit facility while the company had $118 million of
outstanding letters of credit.
Cash flow for operating activities for thirty-nine weeks ended on
Dec 1, 2012, was $599.2 million, while the company expended
nearly $288.7 million (gross) towards capital expenditures.
Changes to Rite Aid's stores continued as it relocated 3 stores,
remodeled 114 stores and closed 10 stores during the third
quarter. The company also completed wellness remodels at about
687 stores as of the end of the quarter. As of Dec 1, 2012, Rite
Aid operated about 4,633 stores.
Rite Aid revised its fiscal 2013 revenue forecast to range to
$25.150 billion - $25.300 billion, from previous guidance of
$25.1 billion - $25.4 billion, based on same-store sales ranging
from a decline of 0.9% to a decrease of 0.3% year over year.
Further, the company upped its fiscal 2013 adjusted EBITDA
forecast to $1.050 - $1.075 billion from $950 - $1.025 billion
guided previously. Currently, net loss/income is expected to be
in the range of a loss of $38 million to a net income of $33
million, while the company earlier projected a net loss in the
range of $965 - $1,025 million. Consequently, the company's
loss/earnings per share projections range between a loss per
share of 5 cents and earnings per share of 3 cents, up from the
previous guidance of loss per share between 9 cents to 23 cents.
In fiscal 2013, the company now expects to incur capital
expenditure of $360 million, up from $300 million guided earlier,
mostly on store remodels and prescription file buys.
The company competes with retail drugstore chains, independently
owned drugstores, supermarkets, mass merchandisers, discount
stores, dollar stores, and mail order pharmacies. Competitive
pressures in the industry are unlikely to subside with continued
consolidation, new store openings, and increased mandatory mail
orders. The company's direct competitors are
CVS Caremark Corporation
Currently, Rite Aid maintains a Zacks #3 Rank, which translates
into a short-term Hold rating. Moreover, we retain a long-term
Neutral recommendation on the stock.